Lenders predict house price slowdown

New houses roofs

Mortgage lender, Halifax, has said house price growth is likely to slow down “considerably” over the next year, despite the likelihood that housing supply will remain limited in the foreseeable future.

In its January 2022 report, Halifax said house prices had risen by 0.3% in the month, the lowest percentage change since June 2021. Annual house price growth reached 9.7%. Average house prices reached a record high of £276,759 and have far exceeded earnings growth.

In addition, rising inflation means households are likely to begin feeling the strain in their budget, particularly as lenders begin to increase mortgage interest rates.

How will this affect first time buyers?

While the stamp duty holiday didn’t affect first time home buyers, who don’t pay the tax, it did help to release bottom rung properties onto the housing market. Consequently, over 400,000 first time buyers were able to buy property in 2021, 35% more than the previous year.

One of the biggest barriers to home ownership is finding the necessary deposit, and both Halifax and Nationwide have warned of possible affordability issues. The Nationwide said a typical first time buyer now needs the “equivalent to 56% of total gross annual earnings” in order to find a 10% deposit.

Although beginning to rise, mortgage affordability remains at “historically low levels”, and a record number of first time buyers have managed to get on the housing ladder. On average, a property of £264,140 would require a deposit of £53,935. This increased amount of deposit required to secure a property has resulted in the average age of first time buyers rising to 32 (from 29 in 2011).

A major incentive to buying a home is the lack of rental property and increasing cost of renting. Renters can find themselves in a vicious circle of spending large proportions of their income on rent leaving no surplus funds to save for a mortgage.

In some cases, first time buyers have been helped by government incentives but new organisations, such as Generation Home, are reinventing the mortgage lending market. The lender offers ‘income booster’ and ‘deposit booster’ mortgages that can include a family member – schemes that protect loans from parents to ensure any borrowed money is refunded at an agreed time or once a house is sold.